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Utica Shale Pipeline Venture

Brian Hicks

Written By Brian Hicks

Posted September 6, 2012

Spectra Energy Corp. (NYSE: SE), Enbridge (NYSE: ENB), and DTE Energy Corp. (NYSE: DTE) have teamed up to develop the Nexus Gas Transmission to exploit an expected rise in demand for natural gas transportation as the Utica Shale ramps up production.

The system will be used to transport natural gas from Ohio’s Utica Shale to markets across the Midwest and Canada. It will involve laying down pipeline that cuts through northeastern Ohio as well as parts of Michigan. Expected costs for the new pipeline installation range from $1.2 to $1.5 billion.

The Utica Shale covers a broad region that includes New York, Pennsylvania, Ohio, West Virginia, and some parts of Canada. Some of the shale even lies beneath the Marcellus shale.

From the Houston Chronicle:

“It’s very early on in the Utica shale,” said Darryl Rogers, a natural gas analyst with IHS-CERA. “Producers are quite bullish because it’s oil-prone. What the expectation of this play is, there is going to be gas associated with oil production or with gas liquids production.”

So far, the Ohio Department of Natural Resources has issued 359 permits for Utica drilling, spread out over companies that include Chesapeake Energy Corp. (NYSE: CHK), Chevron (NYSE: CVX), Devon Energy Corp. (NYSE: DVN), Exxon Mobil (NYSE: XOM), and Anadarko Petroleum Corp. (NYSE: APC). Over the past year or so, drillers have bored 129 wells in the Utica Shale.

So far, it appears that the companies have received enough intimations of interest that they will hold an open season for Nexus contracts in the fourth quarter. Operations are tentatively expected to commence by November 2015, but that will be dependent on demand.

The Nexus System aims to rely on utility corridors in Michigan and another existing pipeline to connect through to the Ontario market. The Vector Pipeline, which traverses Michigan and Ontario, is also expected to be part of the system. Nexus will also connect to two Ontario storage facilities: Tecumseh Gas Storage (an Enbridge property), and the Dawn Hub (owned by Union Gas, which in turn is owned by Spectra).

Vector is a joint venture headed by Enbridge and DTE. The terms of the agreement will give Spectra a 20 percent interest in Vector after the Nexus system is completed.

Once completed, Nexus will cater to local distribution companies, industrial clients, and power generators across Ohio, Michigan, and Ontario, potentially transporting 1 billion cubic feet per day of natural gas through its 250 miles of large-diameter pipeline.

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